Hong Kong stocks rose to a three-month closing high on Monday, led by hopes for strong earnings at HSBC Holdings Plc and on news that contract cell phone maker Foxconn International Holdings Ltd has resumed operations at a factory in India.
China's key stock index ended up 1.33 percent, the highest level in 2-1/2 months, as funds, private equity and insurance companies increased their holdings in anticipation of a further rally. The benchmark Hang Seng Index ended up 1.82 percent or 382.98 points at 21,412.79, its highest closing level since April 26. The China Enterprises Index of top locally listed mainland Chinese companies closed up 2.32 percent at 12,181.45.
Index heavyweight HSBC was up 1.6 percent at a three-month high. The lender was expected to post an about 60 percent rise in first-half profit later today as its consumer finance business in the United States had turned around, the South China Morning Post reported citing analysts.
Some analysts said the surging Hong Kong stock market could be in for a pause as there were few positive catalysts to sustain buying. "China's PMI is on the downside. It makes us worried about the economy over the next few months," said Alfred Chan, chief dealer at Cheer Pearl Investments.
HSBC's China Purchasing Managers' Index fell below the boom-bust line of 50 in July for the first time since March 2009, while the official purchasing managers' index (PMI) fell to a 17-month low in July. "In the short term, from the technical charts, most have been overbought. There could be some consolidation around 21,700," said Peter Lai, a director at DBS Vickers.
The 14-day RSI has hit 70, the level denoting that an asset is overbought and poised for a pullback. Contract cell phone maker Foxconn International Holdings rose as much as 9.2 percent to a five-week high before ending up 8.79 percent, extending earlier gains on news that the company had resumed operations at a mobile phone parts manufacturing facility in India.
China's Geely Automobile Holdings rose 5.9 percent to the highest level in more than two months ahead of news its parent would complete its $1.8 billion purchase of Ford Motor's Volvo unit on Monday. In Shanghai, analysts said that with so many investors rushing into buying stocks, the market was flush with money, which offset data that showed manufacturing activity slowed in July.
The index was also boosted by alcohol companies, as markets expected spirits distillers to publish optimistic earnings results for the second quarter. The Shanghai Composite Index ended at 2,672.516 points, the highest level since May 25 and bouncing from Friday's 0.6 percent fall.
"The market expects second-half earnings results will be good. This will guide the index higher for a while," said Zhang Qi, an analyst at Haitong Securities. All 26 spirits companies listed on the Shanghai and Shenzhen markets rose. Shanghai Jingfeng Wine Co was among the biggest gainers on the Shanghai market, rising 8.8 percent, while Hebei Hengshui Laobaigan liquor Co rose 4.1 percent.
Turnover in Shanghai A shares increased to 110 billion yuan ($16.24 billion) from 94 billion yuan on Friday, while gaining shares outnumbered losers 874 to 18.